What over 1,000 pitch deck tells a psychologist

After reviewing 1,103 pitch decks, here's what I learned through the lens of a psychologist.

For the past 10 years, I have collected 1,103 early-stage pitch decks from approximately 850 startups. This does not include all the drafts and redrafts along the way. Of those 1,103 decks, 702 (as far as I can tell) successfully raised capital. Of those startups that raised, 314 completed more than one round of meaningful capital (>$250k), and 113 raised a round of $10m or more. I have verified this using a mixture of Crunchbase, media articles, and my own personal networking.

I wanted to know what it was about those 113 startups - notably their pitch decks - that made them so successful. But... from a psychology perspective.

Here's what I learned.

It's who, not 'how much.'

Very few stats stood out as clear correlators between their first raise and their $10m+ raise. But this one did.

In 73.5% of cases (85 fundraises, to be precise), each startup had at least one former founder/startup-operator on their cap table prior to their first meaningful fundraise (>$250k). There was no clear statistical correlation between how much money was raised in their first round and the likelihood of raising a $10m+ round at a future date. It's who. Not how much (in your first fundraise).

I believe this is the case because of the 'compound interest' effect. Much like in finance, trust levels 'compound' in strength over time. The trust gained, in an absolute sense, between year 2 and year 3 of a positive relationship is greater than that gained between years 1 and 2. This is due to a trust-building process known as 'knowledge-based trust'. Work by Roberts and Luhmann tested the 'principles of gradualness' as it relates to trust between individuals in the workplace. It is my personal hypothesis that this also occurs between founders and their early investors - so long as they have mutual experiences (knowledge) in common. The outcome of this positive compound effect leads to greater risks taken on behalf of the investor and their willingness to share their resources & network openly throughout the life of the startup.

I hypothesise that former founders earned their network. It's not that they pick any better or are any more valuable an investor. But that, in the early stages, their credibility for experiencing day zero means their network is far more appropriate at the early stages. The effects of a more appropriate network compound down the life of the startup. I'm going to test this hypothesis personally.

Halo the sh!t out of your pitch deck

Regarding pitch deck content, two explicit cognitive biases were clearly at play for those who were successful compared to those who weren't.

The halo effect is a cognitive bias where our overall impression of someone influences how we perceive their individual traits. If we think someone is good in one area, we tend to assume they're good in others, too. This can play out in good and bad ways. For example, research by Nisbett and Wilson experimented on the attractiveness of founders as they attempted to raise capital from a broad and diverse network of early-stage investors. They found that men who were judged to be 'more attractive' raised investment more quickly and at higher levels than those who were 'uggers' (as my little boy likes to say).

Further work by the ever-wonderful Dame Fiona Murray demonstrated that the opposite is true with women. There are many reasons for this discrepancy - driven by how biases are formed between ages 3 and 7. But I don't want to bore you all with developmental psychology theory here. I'll save that puppy for another post. What is important for this article is that positive halos are contextual. What may be a halo for one individual-investor pairing may not be a halo for another.

So how does this play out in the data?

The most successful halo effects in pitch decks involved the early inclusion of third-party and trusted brands endorsing either the founders or the startup. For example, those pitch decks that included logos of recent media coverage or current acceptance into accelerators (good ones, mind you, of which there are hardly any...) were three times more likely to raise than those decks that did not include a halo, or left their possible halos to the end of their deck.

My hypothesis - perhaps predictably - is that introducing halos early unconsciously encourages the prospective investor to look at all subsequent information more positively. It also likely creates confirmation bias - the investor cherry-picking facts and figures from the pitch deck that correspond to the halo and unconsciously skipping anything that may be even a minor contradiction.

These effects extend beyond individual fundraising efforts to broader trends in investment behaviours. For example, Lerner et al. found that the maturity of startups seeking angel funding is inversely correlated with the country's entrepreneurship-friendliness, suggesting that early-stage companies may self-censor their pitch decks in less favourable environments. This phenomenon can be exacerbated by the halo effect, where investors may unconsciously favour startups from more established ecosystems, further entrenching disparities in funding access based on perceived prestige and network affiliation.

This is the primary value of an accelerator - to 'halo' the startup within its own community - instead of its 'home town', so to speak. I saw this specifc halo play out with a company I deeply respect - Memgraph . Originally from Croatia, their acceptance into Techstars London changed the perception of which community they belong to. And, in true form, they moved back to Croatia after their successful fundraise. Nice one.

Here's an anecdotal list of halo pairings that I hypothesise are more successful than others when included within the first 3 slides of a pitch deck:

• The founder achieved a prior exit + size of a new market
• Current media coverage of founders + a tested invention validated by a third party
• Above-average revenue for their stage + a 'sexy' market
• IP developed within a famous institution + a professor as an adviser

There are many, of course, but the above were more common in the decks I had access to.

It's not you, it's me (and you).

Last but by no means least, the final bias that was clear from those who succeeded at raising for any size of round can be attributed to the affinity bias.

Affinity bias is our unconscious tendency to favour people who we perceive as being similar to us. Often, a toxic and malicious bias - shared by founders and investors alike - it creates 'cliques' and groups of investors that apparently only invest in people like themselves. It is predominantly the affinity bias that is responsible for lower levels of funding for minorities and women compared to your classic tall, white-skinned, healthy 'successful-looking' man. As gross as this reads, the reality of how the human mind develops is that we are all unconsciously engineered to find similarities more trustworthy than differences. Our brains are wired to seek out the familiar and comfortable. When we encounter someone who shares similarities with us, it creates a sense of connection and trust. This is science - not an excuse. I want to make that clear.

Where it was possible to establish the investors' backgrounds and the information shared on the pitch deck regarding the founders'/startup backgrounds and interests, clear examples of affinity emerged.

Unsurprisingly, men invested more in men. Underdogs invested in underdogs. However, what was more nuanced were mentions of alumni or groups in common. For example, when a founder declares they went to a specific college, they raised more money from investors who were also associated with that school. This extends to prior professions where an alumni effect can be found. For example, investors who have a medical background were more likely to invest in founders who shared some form of pedigree in medicine - regardless of the startup's actual focus.

Another interesting trend was that affinity does not only relate to the founders. It can also occur between the investor and the 'persona' of the pitch deck. For example, investors with a 'design or artistic background' disproportionately invested in pitch decks with colourful slides which included novel images and shapes. Those who were more academic invested in information-heavy pitch decks. etc etc.

The only affinity that appears not to play out, which may also be related to the trends seen at MIT Sloan, is that women investors did not invest more in women founders. As disheartening as that sounds, there must be additional influences at play, which I hope one day someone will help me better understand.

So what's the advice, Chris?

Firstly, it's Dr Howard. Tut. I'm wearing my academic hat. I didn't spend three years looking at graphs in a windowless room for nothing.

Anyway...

Leveraging the above understandings can help make or break the 'first impression' of a pitch deck to a new investor. It is abundantly clear that targeting your first fundraise to former founders and operators will likely lead to greater chances of future financing. That's irrespective of whether they are angel investors or VCs. The reasons are still unclear, but the data have spoken. The Halo Effect is also clearly a valuable tool in the founders' pitching toolbox. And creating affinity with the specific investor opening that PDF is critical to how credible you are to them.

So, psychology tip 1 - get a former founder/operator on your cap table early. They must invest. No sweat equity which invokes other negative biases that I don't want to bore you with here. Their early investment also elicits the 'Ikea Effect'.

I am explicitly testing this principle in my upcoming event on the 14th October 2024 in London called "First Money In" after the Rare Founders demo day. 10 startups having yet to raise a penny (all vetted by yours truly) and ~10 investors I trust. It's an auction of startup ideas, so to speak. Remember, it's who - not how much.

Psychology tip 2 - introduce as many halo pairings as possible within the first three pages of your pitch deck. This will elicit unconscious biases within the investor that make them neglect contradictory information in favour of those examples that support the halo.

Psychology tip 3 - every time you send a pitch deck to a new investor, research and find something of affinity between themselves and your startup. If it is in the form of a founder affinity (i.e. same college, former teachers - whatever) - ensure that affinity is presented early in your deck. But if it is an affinity to style, mutual networks in common, alumni or whatever - pepper it throughout your deck in subtle (and sometimes unsubtle) ways.

Chris/ final thoughts

I am attempting to create an entire volume of psychological biases and their effects on the founder's journey. I have so much work to do to translate our common experiences to the work of behavioural psychologists. If you have any experiences, stories, knowledge, or suggestions on where to look to create a 'psychology hacks for founders' guide, please hit me up.

The above only scratches the surface. I'll share more as I find it.

Big love.